2016 Promises Bright Future for Diamond Investments

For the last 50 years or so, the industry has had its share of bumps on the road, like many other industries, but 2015 will be remembered as one of toughest years to date.  Some might even call it the perfect storm! Reduced credit coupled with low demand from developing countries like China and India (due to tough economic times), and lower trading even within the industry have all contributed to the current situation. Diamond manufacturing is also down in India, where the majority of the polishing takes place, and a large portion of polishers found themselves without work and with a bleak future. Even fancy color diamonds trading has slowed down. The only reason that prices have held steady, and in some cases even increased, is due to the extreme rarity of those specific colors. In certain diamond colors, demand will always outstrip supply from every level of the value chain.

 

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A pink diamond and a blue diamond ring, two extraordinary and rare colors of fancy color diamonds

Image credit: Sotheby’s

 

Who is To Blame?

It is easier to point the finger at the person across the room rather than take responsibility for our own actions and wrong decisions. In the case of the state of affairs in the diamond industry, some blame the mining companies, others blame the traders, and some even blame service providers to the industry for attempting to manipulate valuations.

In reality it is a combination of all the factors that are hypothesized. Every party involved in the value chain, all the way from the mining companies, to the polishers, the traders, to the outside service providers and retailers should take some sort of responsibility for how things have turned out. Since we all have our natural instinct of desiring to maximize our own returns, and what comes to our own pockets, it is natural to forget that eating the pie means that it doesn’t stay untouched. Something has to give. Our actions, or better yet, misacting, caused all of us to suffer. However what’s worse is that consumers are losing confidence in the industry. The loss of confidence is the result of the industry not being able to properly educate, display and differentiate what seems to be real and natural diamonds from clarity enhanced and lab grown diamonds (which will only increase with time due to lower production costs, and proper marketing tools) and from alternative products on the market.

 

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A natural diamond next to an enhanced diamond, which any layman would not be able to differentiate

Image credit: Yehuda Diamonds

 

De Beers has been seen as the black knight for years, but we also have forgotten that they were the once that sold the dream (and got the industry moving with), the famous “A Diamond is Forever”. We can see that as De Beers reduced their marketing spending on the generic diamond brand, sales have decreased globally in tandem. Only recently have all the major mining companies gotten together and decided to work together as a team and bring back the old way of doing things- promoting diamonds as a generic, desirable product.

 

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The legendary ‘A Diamond is Forever’ marketing campaign     Image credit: De Beers

 

Where Are We Heading?

Many industry observers are predicting good news with a reverse of the markets taking place later on in 2016. The truth is that the industry will recover if proper steps are taken to repair it. The first step is to recognize that each layer in the value chain brings tremendous value to the industry as a whole, and that we must work together for the benefit of all. For example, the top mining companies got together and created their own association, deposited real money to use toward heavy marketing, and now we are all waiting to see how their marketing efforts will pay off. However, it is also up to traders and retailers to market their own brands to be distinguished and subsequently desired for their specialties. It is also very important for all the members of the value chain to work together.

2016 will also be marked as the genesis of brand value for diamonds. If we look at the luxury industry as a whole, from cars, to watches, to wearables, we clearly see how much money is invested in brand recognition for conspicuous consumerism. This is where we build value because otherwise, it simply amounts to a price war. We have to show value in our brand to increase demand.

Another important aspect is security. How will a consumer know they are getting what they have purchased and paid for? If we lose consumer confidence, then no matter how much marketing dollars we pour in, it will continue to fail. Ensuring consumers’ confidence is key, and goes hand in hand with brand recognition. A customer’s confidence that he is getting what he paid for is the most important aspect.

For most of us within the industry, it is taken for granted who the grading labs are, and what is the difference between them. However, because of this we have also seen much turbulence in the industry. In the end, the whole industry suffers because of this disharmony. From mislabeled diamonds, to artificial coloring, and the possibility of database hacking, consumers need to feel safe. We need to find a way to make consumers feel secure and to trust. At the end of the day, they drive the market and not the other way around.

 

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Inside the GIA diamond grading lab                                  Image credit: GIA

 

Once elements like these are fully acknowledged, the diamond industry can begin to develop steps towards significant improvement of the current situation. It is crucial to remember that in the information age, the consumers have more power than ever before to manipulate brands and to even bring an entire industry to its knees. Therefore, in order for the diamond business to survive, steps will need to be taken to correct the path on which it has mistakenly wandered now for far too long. With these changes, improvement for the entire value chain is guaranteed, and to the benefit of all.

Disagree with the hypotheses or predictions that I outlined above? Tell me in the comments or contact us!

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